Privatisation

Water was privatised in England as part of the great sell off of public assets in1989. It was the usual story: it would be more efficient because of competition. Private companies would be able to invest more in infrastructure. Etc. It had been proposed in 1984 but was shelved because of public opposition: but dusted off when the tories won the next election

Curiously the way the service was privatised specifically prevented competition, because private monopolies were granted in the different areas for 25 years. They didn't even tender for that monopoly: they were handed it when the Regional Water Authorities (which were "restructured" into being before the sell off) were privatised. The government wrote off all the existing debt as well as handing over money to those companies to get them started.

As with other assets stolen from the public, they were offered for sale at a sustantial discount; so the shares went up immediately afterwards. Profits rose 147% between 1990 and 1997.The regulator is supposed to make sure the companies are profitable when it sets the price cap: it does that by comparing the companies with each other. Clever!! So prices rose by 36% for water and 42% for sewage in the 10 years after privatisation after adjusting for inflation. Curiously Ofwat, the regulator, sets the prices the directors of the company tell them to set. At least, they tell the regulator how much their costs are going to be and the price is set taking account of that information. Apparently they got it wrong and the costs were lower than they estimated......

In England your water can be cut off if you don't pay your bills: and this does happen.


They got it wrong on capital expenditure too. They thought they would spend a lot more than they actually did. Which also boosts profits.... Curiously capital expenditure was rising just before privatisation. It peaked in 1991/2. Then it levelled off. Then it fell. Whoever heard of infrastructure costs falling if the work is being done? Ofwat set the price to allow for the infrastructure spending which never happened......

There is now a water shortage in the south and east of the country and 20 million people are under a hosepipe ban.

There are a number of reasons for this. There has been low rainfall there for the last two winters. 3 billion litres of water a day are lost to leaks (which just might be related to the shortfall in capital expenditure noted above). The population of the southeast has increased (which could be due to high levels of unemployment everywhere else) . We all use more water.

If we accept those reasons it may be that it is not the water companies fault. But that does not account for the fact that the top bananas in those companies got massive bonuses for reaching their targets. Once again you have to ask what use are targets which do not include a water company delivering water?

They are asking people to use less generally to help the situation. Why the hell should they? If a public asset is in trouble I can see a case for action of that kind. But they are private. I see no reason at all to help them out.